A-72783, MAY 6, 1936, 15 COMP. GEN. 966

A-72783: May 6, 1936

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AS FOLLOWS: CLAIMS HAVE BEEN MADE UPON THE VETERANS' ADMINISTRATION IN TWO CASES BY SURETY COMPANIES. ARE ENCLOSED. THE FIRST CASE IS THAT OF PAUL BLASANGAME. A DUPLICATE ADJUSTED SERVICE CERTIFICATE WAS ISSUED TO THIS VETERAN UNDER DATE OF SEPTEMBER 9. THE DUPLICATE CERTIFICATE WAS PLEDGED WITH THE WASHINGTON. THE ORIGINAL ADJUSTED SERVICE CERTIFICATE ISSUED TO THIS VETERAN WAS DEPOSITED WITH THE NORFOLK NATIONAL BANK OF COMMERCE AND TRUST. THIS LOAN WAS REDEEMED FROM THE BANK BY THE VETERANS' ADMINISTRATION ON APRIL 28. THE CASE WAS REFERRED TO THE EXAMINER OF QUESTIONED DOCUMENTS OF THE TREASURY DEPARTMENT. WHO EXPRESSED THE OPINION THAT THE SIGNATURES TO THE TWO PROMISSORY NOTES ON WHICH THE LOANS WERE GRANTED.

A-72783, MAY 6, 1936, 15 COMP. GEN. 966

SUBROGATION OF SURETY - FRAUDULENT LOANS - DUPLICATE ADJUSTED SERVICE CERTIFICATES A SURETY ON A VETERAN'S BOND EXECUTED AS A BASIS FOR ISSUANCE OF A DUPLICATE ADJUSTED SERVICE CERTIFICATE HAS NO REMEDY BY WAY OF SUBROGATION OR OTHERWISE UNDER THE ADJUSTED COMPENSATION PAYMENT ACT OF 1936, 49 STAT. 1099, TO RECOVER THE AMOUNT PAID TO INDEMNIFY THE UNITED STATES FOR LOSS SUSTAINED BY REASON OF LOANS FRAUDULENTLY OBTAINED BY THE VETERAN IN CONNECTION WITH SAID DUPLICATE CERTIFICATE.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR OF VETERANS' AFFAIRS, MAY 6, 1936:

THERE HAS BEEN RECEIVED YOUR LETTER OF MARCH 20, 1936, AS FOLLOWS:

CLAIMS HAVE BEEN MADE UPON THE VETERANS' ADMINISTRATION IN TWO CASES BY SURETY COMPANIES, FOLLOWING THE RECENT ENACTMENT OF PUBLIC, NO. 425, 74TH CONGRESS,"AN ACT TO PROVIDE FOR THE IMMEDIATE PAYMENT OF WORLD WAR ADJUSTED SERVICE CERTIFICATES, FOR THE CANCELATION OF UNPAID INTEREST ACCRUED ON LOANS SECURED BY SUCH CERTIFICATES, AND FOR OTHER PURPOSES," APPROVED JANUARY 27, 1936, FOR REIMBURSEMENT TO THEM FROM THE NET AMOUNTS DUE UNDER THAT ACT ON THE DUPLICATE ADJUSTED SERVICE CERTIFICATES ISSUED TO THE VETERANS OF THE SUMS PAID BY SUCH COMPANIES TO THE UNITED STATES UNDER THEIR BONDS OF INDEMNITY COVERING LOANS APPARENTLY OBTAINED BY THE VETERANS THROUGH FRAUD ON THEIR ORIGINAL ADJUSTED SERVICE CERTIFICATES. COPIES OF THE LETTERS RECEIVED FROM MR. JAMES O-CONNOR ROBERTS, ATTORNEY FOR THE HARTFORD ACCIDENT AND INDEMNITY COMPANY, AND FROM THE ADJUSTOR REPRESENTING THE AETNA CASUALTY AND SURETY COMPANY, ARE ENCLOSED.

THE FIRST CASE IS THAT OF PAUL BLASANGAME, A-4547773. A DUPLICATE ADJUSTED SERVICE CERTIFICATE WAS ISSUED TO THIS VETERAN UNDER DATE OF SEPTEMBER 9, 1932, ON EVIDENCE SUBMITTED BY HIM THAT THE ORIGINAL HAD BEEN LOST AND A BOND OF INDEMNITY FURNISHED WITH THE HARTFORD ACCIDENT AND INDEMNITY COMPANY OF HARTFORD, CONNECTICUT, AS SURETY THEREON, AGREEING TO PROTECT THE UNITED STATES AGAINST THE PAYMENT OF ANY SUM UNDER THE ORIGINAL CERTIFICATE. THE DUPLICATE CERTIFICATE WAS PLEDGED WITH THE WASHINGTON, D.C., REGIONAL OFFICE OF THE VETERANS' ADMINISTRATION ON THAT DATE AS COLLATERAL FOR A LOAN OF $432.00 MADE TO THE VETERAN. THE ORIGINAL ADJUSTED SERVICE CERTIFICATE ISSUED TO THIS VETERAN WAS DEPOSITED WITH THE NORFOLK NATIONAL BANK OF COMMERCE AND TRUST, NORFOLK, VIRGINIA, ON SEPTEMBER 22, 1932, AS COLLATERAL FOR A LOAN OF $432.00. THIS LOAN WAS REDEEMED FROM THE BANK BY THE VETERANS' ADMINISTRATION ON APRIL 28, 1933, BY THE PAYMENT OF SUCH LOAN WITH INTEREST TO DATE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 502 (C) OF THE WORLD WAR ADJUSTED COMPENSATION ACT. THE CASE WAS REFERRED TO THE EXAMINER OF QUESTIONED DOCUMENTS OF THE TREASURY DEPARTMENT, WHO EXPRESSED THE OPINION THAT THE SIGNATURES TO THE TWO PROMISSORY NOTES ON WHICH THE LOANS WERE GRANTED, SECURED BY THE ORIGINAL AND DUPLICATE ADJUSTED SERVICE CERTIFICATES, RESPECTIVELY, WERE WRITTEN BY THE SAME PERSON. DEMAND WAS THEREAFTER MADE ON THE HARTFORD ACCIDENT AND INDEMNITY COMPANY FOR REFUND OF THE AMOUNT PAID TO THE BANK IN REDEMPTION OF THE LOAN ON THE ORIGINAL CERTIFICATE, PLUS INTEREST TO DATE OF PAYMENT, AND A CHECK IN FULL SETTLEMENT THEREOF WAS RECEIVED FROM THAT COMPANY.

IN THE SECOND CASE, THAT OF JOHN EDWARD JOHNSON, A-1332485, A DUPLICATE CERTIFICATE WAS ISSUED TO THE VETERAN UPON RECEIPT OF PROOF OF LOSS AND A BOND OF INDEMNITY FURNISHED BY THE AETNA CASUALTY AND SURETY COMPANY OF HARTFORD, CONNECTICUT. THREE LOANS, TOTALING $530.13, WERE OBTAINED BY THE VETERAN ON HIS DUPLICATE ADJUSTED CERTIFICATE THROUGH THE KANSAS CITY REGIONAL OFFICE OF THE VETERANS' ADMINISTRATION DURING THE YEARS 1929, 1930, AND 1931. THE ORIGINAL CERTIFICATE WAS HYPOTHECATED THROUGH THE REGIONAL OFFICE AT WICHITA, KANSAS, FOR A LOAN OF $547.00 MADE ON MARCH 11, 1931. A REPORT OF INVESTIGATION MADE BY THE UNITED STATES SECRET SERVICE STRONGLY INDICATED THAT THE LOAN ON THE ORIGINAL CERTIFICATE WAS PROCURED BY THE VETERAN. PURSUANT TO DEMAND MADE UPON THE AETNA CASUALTY AND SURETY COMPANY FOR REFUND FOR AMOUNT OF THE LOAN MADE ON THE ORIGINAL ADJUSTED SERVICE CERTIFICATE, WITH INTEREST TO DATE OF PAYMENT, A CHECK COVERING THE ENTIRE AMOUNT DUE WAS RECEIVED. A FURTHER INVESTIGATION REPORT RECENTLY RECEIVED FROM THE SECRET SERVICE SHOWS THAT THE VETERAN HAS BEEN ARRESTED FOR SECURING LOANS ON BOTH THE ORIGINAL AND DUPLICATE ADJUSTED SERVICE CERTIFICATES, AND THAT HE HAD PRESENTED APPLICATIONS FOR PAYMENT UNDER PUBLIC, NO. 425, SUPRA, OF BOTH THE ORIGINAL AND DUPLICATE CERTIFICATES, TO THE VETERANS' ADMINISTRATION REGIONAL OFFICE AT KANSAS CITY, MISSOURI.

YOUR DECISION IS REQUESTED AS TO WHAT ACTION SHOULD BE TAKEN IN THESE CLAIMS.

THE ACT OF JANUARY 27, 1936, 49 STAT. 1099, PROVIDES FOR PAYMENT OF THE VALUE OF AN ADJUSTED SERVICE CERTIFICATE TO THE VETERAN OR HIS ESTATE IN BONDS ONLY, EXCEPT AS TO AMOUNTS CERTIFIED DUE THE VETERAN BEING LESS THAN $50, AND, ALSO, AS TO ANY DIFFERENCE BETWEEN THE CERTIFIED AMOUNT (EXCEEDING $50) AND THE FACE AMOUNT OF THE BONDS (THE BONDS BEING IN MULTIPLES OF $50). THERE IS NO PROVISION OF THE LAW WHICH REASONABLY MAY BE CONSTRUED AS AFFORDING THE SURETY ON A VETERAN'S BOND EXECUTED AND FILED AS A BASIS FOR ISSUANCE OF A DUPLICATE ADJUSTED SERVICE CERTIFICATE, ANY REMEDY BY WAY OF SUBROGATION OR OTHERWISE AGAINST THE VETERAN TO RECOVER THE AMOUNT PAID TO INDEMNIFY THE UNITED STATES FOR ITS LOSS SUSTAINED BY REASON OF HAVING ISSUED A DUPLICATE CERTIFICATE.

SECTION 7 OF THE STATUTE PROVIDES AS FOLLOWS:

NOTWITHSTANDING THE PROVISIONS OF PUBLIC LAW NUMBERED 262, SEVENTY FOURTH CONGRESS, APPROVED AUGUST 12, 1935, NO DEDUCTIONS ON ACCOUNT OF ANY INDEBTEDNESS OF THE VETERAN TO THE UNITED STATES, EXCEPT ON ACCOUNT OF ANY LIEN AGAINST THE ADJUSTED-SERVICE CERTIFICATE AUTHORIZED BY LAW, SHALL BE MADE FROM THE ADJUSTED-SERVICE CREDIT OR FROM ANY AMOUNTS DUE UNDER THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, OR THIS ACT.

WHILE THIS SECTION DOES NOT PRECLUDE THE UNITED STATES ITSELF FROM CHARGING AGAINST A VETERAN'S CERTIFICATE THE LOANS FRAUDULENTLY RECEIVED BY HIM ON BOTH THE ORIGINAL AND DUPLICATE CERTIFICATES (SEE DECISION IN 15 COMP. GEN. 841) IT DOES PRECLUDE THE UNITED STATES FROM ISSUING BONDS IN FAVOR OF THE SURETY OR IN FAVOR OF THE VETERAN FOR THE BENEFIT OF THE SURETY UNDER THE DOCTRINE OF SUBROGATION. THE QUOTED SECTION OF THE STATUTE UNQUESTIONABLY DENIES ANY REMEDY TO THE SURETY UNDER THE TERMS OF THE STATUTE AGAINST THE VETERAN'S ADJUSTED SERVICE CREDIT (7 COMP. GEN. 136; ID. 305; ID. 335; 12 ID. 491). SEE ALSO SECTION 308 (A) OF THE WORLD WAR ADJUSTED COMPENSATION ACT, AS AMENDED, (44 STAT. 827), AND SECTION 3 OF THE ACT OF AUGUST 12, 1935 (49 STAT. 609). CONTRARY TO THE VIEW EXPRESSED BY THE ATTORNEY FOR ONE OF THE SURETIES, THIS RULE IS APPLICABLE REGARDLESS OF THE FACT THAT THE LOSS WAS SUSTAINED BY THE GOVERNMENT PURSUANT TO THE SAME STATUTE UNDER WHICH THE TRANSACTION AROSE RESULTING IN THE FRAUD. THE CONTRACT WAS BETWEEN THE SURETY AND ITS PRINCIPAL, THE VETERAN. IT PRESUMABLY HAS RECEIVED A CONSIDERATION FOR THE LIABILITY ASSUMED--- IT BEING PAID A PREMIUM FOR ITS CONTRACT UNDERTAKING--- AND IT IS CHARGED WITH KNOWLEDGE OF THE PUBLIC LAW BARRING THE RIGHT OF SUBROGATION IN THIS CLASS OF CASES.

YOU ARE ADVISED, THEREFORE, THAT THE CLAIMS OF THE SURETIES IN BOTH CASES SHOULD BE DENIED.